Hostess, the maker of Twinkies, Ding Dongs and Wonder Bread, is going out of business

In a letter posted on a new site set up to communicate with employees and suppliers through the liquidation process, Hostess's CEO pinned the blame on its striking union.

RACHEL FEINTZEIG, WSJ, Nov 16 2012

Hostess Brands is seeking to liquidate.

Hostess Brands Inc., the maker of iconic treats such as Twinkies and traditional pantry staple Wonder Bread, said Friday it is shuttering its plants and will seek to liquidate the 82-year-old business.

The company, which filed for Chapter 11 in January, said it has requested bankruptcy-court authorization to close the business and sell its assets.

A victim of changing consumer tastes, high commodity costs and, most importantly, strained labor relations, Hostess ultimately was brought to its knees by a national strike orchestrated by its second-largest union.

The work stoppage, launched Nov. 9 by the Bakery, Confectionery, Tobacco Workers and Grain Millers Union to protest a fresh labor contract, affected about two-thirds of Hostess's 36 plants. The strike was making it impossible for the Irving, Tex., company to continue producing its baked goods, Chief Executive Gregory Rayburn said.

In a letter posted on a new site set up to communicate with employees and suppliers through the liquidation process, Hostess's CEO pinned the blame on its striking union.

The CEO, a restructuring professional who ascended to the top of the company after its former leader abruptly resigned earlier this year, said the liquidation will take months but require few workers.

"We deeply regret the necessity of today's decision, but we don't have the financial resources to weather an extended nationwide strike," Mr. Rayburn said in a statement Friday morning. He said the company will "promptly" lay off most of its 18,500 employees and focus on "selling its assets to the highest bidders."

Hostess's remaining inventory—loaves of bread and plastic packages of cream-filled desserts—probably will be sold in bulk to a discounter or big-box store. The company will attempt to sell its plants and its brands, "everything and anything that we can," Mr. Rayburn said in an interview Thursday afternoon, before the company had announced it would shut down.

The fate of the company's ubiquitous brands remains uncertain, set to be decided by a bankruptcy court auction run by Hostess's investment bankers, or perhaps determined by a group of liquidators. Mr. Rayburn has said he's unsure if all of the company's brands—there are about 30, from Drake's to Ding Dongs—will sell or how much they might fetch.

On the one hand, the names have decades of brand equity, and there is "pretty significant demand" for the products, according to Mr. Rayburn. Hostess has revenue of about $2 billion annually. But a competitor would have to ramp up production if it took on the Twinkies or Ding Dong brand and give up valuable shelf space already devoted to its own goods, Mr. Rayburn noted.

The specter of liquidation has loomed large since the bankruptcy case, Hostess's second in recent years, kicked off in January. From the start, the company has warned that labor cuts were its only chance to survive and said the only other possible outcome was a full shutdown of the business. Both Hostess and its largest union, the International Brotherhood of Teamsters, have long agreed a widespread strike would spell the end of the company.

But Hostess has threatened liquidation before in the case—and during its last stint in Chapter 11—and not followed through. Earlier this year, it said a vote against its last, best, final offer by either of its two largest unions would prompt an immediate liquidation. But when the bakers union gave Hostess just that trigger, Hostess instead decided to take its case back to the court.

At the time, Mr. Rayburn said he was changing course because of an unfair voting process that had been skewed by management, a claim bakers union president Frank Hurt denied.

Associated Press

Diana McKinley from the Seattle local 9 pickets on Thursday at Hostess plant in Sacramento, Calif.

The company's roller coaster of a bankruptcy case nearly led it to reorganization. Months of negotiations, threats and labor trials ultimately brought all of Hostess's unions on board with a fresh collective-bargaining agreement. Some, like the Teamsters, gave their support willingly, though begrudgingly, while others, like the bakers union, were forced by a judge to accept the new deal.